Why AT&T Should Ditch the iPhone, ASAP

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Sometimes, you really should be careful what you wish for.

That's how The Wall Street Journal views AT&T's (NYSE: T  ) exclusive license to sell Apple (Nasdaq: AAPL  ) iPhones. This deal with the turtlenecked devil is bringing in fewer new AT&T subscribers than you'd think -- while overloading AT&T's high-speed data networks and making the carrier look bad.

If there's one consistent complaint about the sleek, slick, powerful iPhone, it's the lack of a dependable network. Before the iPhone 3G model was launched last year, it was a popular pastime among tech enthusiasts to buy first-generation iPhones, unlock them, and use them on some other carrier's networks. Analysts tell the Journal tales of sold-out Apple conferences where every mention of AT&T would draw boos from the audience.

The article concludes that Verizon (NYSE: VZ  ) probably would steal plenty of current iPhone customers from AT&T if given the opportunity. In fact, many pre-iPhone subscribers could make the jump, too. As the Journal concludes, "Whatever value AT&T got from the device, it seems clear that Apple was the real beneficiary."

Verizon's advertising centers on "the most reliable network" in America. At some point, Apple may give Verizon a chance to walk the talk. In the meantime, Verizon's fanciest smartphone is the BlackBerry Storm from Research In Motion (Nasdaq: RIMM  ) , accompanied by a smattering of lesser lights from HTC and Samsung.

While the BlackBerry market is large, it tends to attract corporate users with a milder appetite for data-intensive online video and web surfing than your average iPhone afficionado. AT&T also offers other highly capable smartphones from providers such as Nokia (NYSE: NOK  ) , RIM, and Samsung, but says that iPhone subscribers consume two to four times the data bandwidth of the other smartphone users. In other words, Verizon's network has never truly been tested on an iPhone scale.

Despite the Journal's misgivings, I believe that the iPhone deal has been very good to AT&T. If Apple takes its ball and goes elsewhere, AT&T will be left with a network considerably strengthened by its efforts to keep up with data traffic demand from the prodigal phone. Without the old, heavy load, the AT&T network should be the snappiest in the business -- ready to pick up replacements like the Palm (Nasdaq: PALM  ) Pre or Google (Nasdaq: GOOG  ) Androids. The rebuild would be long and arduous, but AT&T would come up aces in the end.

What doesn't kill you makes you stronger. Maybe AT&T should just thank Apple for tempering its networks -- and let the iPhone do as it pleases. Care to disagree? Sound off in the comments box below.

Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor recommendation. Nokia is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (11) | Recommend This Article (31)

Comments from our Foolish Readers

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  • Report this Comment On August 31, 2009, at 3:13 PM, lkmd2016 wrote:

    I think apple should go ahead and buy out AT&T.

    I bet Steve would convert the company to Apple quality.


  • Report this Comment On August 31, 2009, at 4:19 PM, manhattanbanker wrote:

    @lkmd98: "I think apple should go ahead and buy out AT&T."

    aapl's market cap, while growing, is still a little smaller than at&t's though aapl has $30 billion in cash on hand, at&t also has a lot of debt, plus at&t is a mess with how they handle billing etc. - though i bet apple could clean them up a bunch!

  • Report this Comment On August 31, 2009, at 4:43 PM, linuxslate wrote:

    AT&T is a GSM network, Verizon is a CDMA network It's kinda like comparing Harley Davidson and Hummer. They both make vehicles, but they are not strictly selling the same product. T-Mobile is a GSM provider, and competes directly with AT&T. An unlocked iPhone can be used on T-Mobile, but no matter how you hack it, no current iPhone could be used on Verizon. An iPhone made for Verizon could not be sold in most other countries. Its worldwide success, and thus, the incentive to produce it is significantly reduced.

  • Report this Comment On August 31, 2009, at 5:18 PM, kcookie wrote:

    Apple buy T what are you guys smoking for cry sakes

  • Report this Comment On September 01, 2009, at 10:32 AM, Matt015 wrote:

    Good thing you guys are not in the M&A business. Apple should not buy a telecom.

    Just because a company manages itself well doesn't mean it can run any business well.

  • Report this Comment On September 02, 2009, at 8:19 AM, bill123hb wrote:

    Interesting. The author sees the iPhone as holding AT&T down. I see it the other way.

    The Europeans got this right. We didn't. The sooner we abandon the idea of tying service to hardware, the better. Did radio stations require people to have motorola/RCA victor/etc.?? Silly.

  • Report this Comment On September 02, 2009, at 8:25 AM, BluegrassInNYC wrote:

    AT&T's enthusiastic cooperation with the NSA on setting up a separate room from which to store data on ALL phone calls going over its network has kept me away from them and the iPhone. I was very disappointed that Apple chose to use AT&T exclusively and I will not get an iPhone until they start using other carriers, even though I am drawn strongly to its features and applications.

  • Report this Comment On September 04, 2009, at 4:16 PM, CaptainRadd wrote:

    Bill's got it right that the Europeans got it right. I think was complete foolishness (lower case f, as you see) to have ATT as the sole provider.

    I look at it this way, Apple loses because their phones can't/won't be used by a very significant segment of the US population. People tend to be worrisome about switching providers...what if the phone service isn't as good, what if the customer service isn't as good?

    For the consumers, having the iPhone available on multiple carriers would likely bring the price of the plans down somewhat, as there would be increased competition between those plans just as there is now for conventional mobile phone plans.

  • Report this Comment On September 04, 2009, at 5:02 PM, LBwireless wrote:

    Apple needs to add WiMax functionality. The CLEAR network is the longterm solution to bandwidth woes! The other carriers will never have enough bandwidth to support massive demand, and LTE is a bandwidth starved dream.

  • Report this Comment On September 04, 2009, at 9:25 PM, FC12345 wrote:

    AT&T is so heavy in a older entrenched high salary work force that it is the GM of the telecom industry. Apple and its mergers have saved AT&T from itself. Nice deregulation has allowed this to happen and thats why we pay as much as we do for service, while not forceing the quality and service issue. This industry is ripe for technological breakthrough.

  • Report this Comment On September 12, 2009, at 6:38 AM, JDSancho wrote:

    "If Apple takes its ball and goes elsewhere, AT&T will be left with a network considerably strengthened by its efforts to keep up with data traffic demand from the prodigal phone"

    Perhaps a 'considerably strengthened' network, but one that nobody is using. No one will want to subscribe to the network the iPhone doesn't work like that.

    A joint venture with T-Mobile is an interesting thought, however...

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